Professionals should do well again in 2007

The larger firms have built their staff levels from a standing start (Goldman had 56 employees in 1978 in London, Morgan Stanley had not even opened an office) to a cast of thousands.This was an extraordinary period of expansion that has come to an end. At best, employment levels will stagnate at this high level and fluctuate slightly around it with the ebb and flow of business levels.Professionals should be relatively safe from the trend towards overseas outsourcing or automation. Individual employees, however, will be under pressure to perform and may be weeded out in favour of younger staff that is potentially cheaper and keen to move up the career ladder.

London vs. New York - A Tale of two Cities

We do not think that the ascendancy of London as a financial centre to rival - and even overtake - New York should surprise anyone. The issue of overregulation in the US may be a factor but sheer demographic realities make it difficult for New York to maintain its position as undisputed leader among financial centres. This position was a legacy of two world wars and now that Europe is not cut in half by the Iron Curtain London is the natural financial centre for a region with a population of 600 million inhabitants. London is also geographically much closer to the Middle East and Africa and even Latin America is not that much farther away from London than from New York. London also offers a much more diverse workforce than New York as it is close to a multitude of different countries whose languages are regularly needed to conduct business effectively around the world.

Arbitrary bonus allocation creates legal minefield

The Financial Services Industry is in the middle of the annual round of deciding the size of the bonus pool for its employees as well as the distribution of the payments between the various departments and staff members. Recent Press comments let us send a word of caution to Senior Management and Human Resource Departments. We are very sympathetic to management's desire to reward those among their staff that they think offer the best potential to make good contributions in the future. So we are not surprised that employers may wish to award the bulk of their bonus pool to the most profitable employees or to younger staff that they wish to motivate.However, today's litigious workplace limits the amount of discretion employers have without running the risk of being dragged into damaging and costly legal disputes.Awarding bonuses on anything less than objective standards creates a legal minefield for the employer as those employees that have received a low bonus may be tempted to have their compensation reviewed by an employment tribunal or even in a court of law.Some firms still have no adequate internal system to allocate profits on an objective basis and they should now urgently review their management controls. They will need them so that they can make sure that bonus payments are backed up by hard numbers that can stand up to scrutiny in a court if staff members feel that their bonus was allocated in an arbitrary fashion.

Bonus time approaching fast

When discussing bonus trends we always jokingly say that if all the bonus hopes in the City were to be full-filled in any given year, the bonus pool - however large it might in fact be - would have to be twice the size to satisfy the hopes of recipients.Earlier this year we warned that employers should take great care to award bonus payments in a rationale and well-documented fashion.Recently we found an interesting piece posted by Freshfields on the Complinet website. This supports our warnings and discusses ways for employers to avoid contractual claims arising out of bonus decisions. The Freshfield article touches on questions such as: Is there any entitlement to be considered for a bonus? To what extent can a bonus be fully discretionary (if at all)? How to avoid discrimination claims.

HSBC manages a smooth succession

The promotion of Chief Executive Stephen Green to Chairman shows the dilemmas created by the governance code of practice. In an ideal world the ultimate owners would be intimately involved in controlling the executive management of a company and select the managers directly rather than delegating power in effect to a self-perpetuating hierarchy. But this ideal world does not exist and we have to make do with a 'second best' solution. In HSBC's case, this solution may well be the first choice. The bank has avoided the pitfalls that befell many of its (sometimes more glamorous) competitors, there are no revolving doors in the top management floor and struggles between individuals - if they persist - are kept away from the eyes of the public.

Hedge Funds a boon to employment

As we predicted earlier in the year the job market in the financial service sector is vibrant but there is probably no net expansion in overall employment levels. The one factor that should not be ignored is the tremendous support that the job market has received from the extraordinary growth in the hedge fund industry.While most Funds are small and even the largest group employ at best a couple of hundred people the sheer number of funds and supporting firms or divisions in the traditional securities industry means that many an analyst, salesperson or investment manager that would otherwise have been unemployed is secure for now. This in turn supports salary levels for those in employment in firms that are not directly involved in Hedge Funds.

Bonus payments cannot favour the few

Recent court decisions make it dangerous to allocate the bonus pool in a discriminatory fashion. It is sometimes said that the major share of the bonus pool may be given to the proverbial big hitters which bring in the lion share of the revenues. This can only be acceptable as long as the distribution of the bonus pool is justified by production numbers.Any deviation leaves firms and their line managers open to law suits by professionals who consider themselves treated unfairly.Every firm and department always will have a few big producers among staff. Often they are just lucky to be allocated the best clients. This may be due to the fact that they are the best professionals, - but even then their production numbers are only made possible by the presence of an infrastructure supported by their team colleagues. This aspect will always exert a levelling influence on the disparity of bonus levels among staff.